Did you know the average American credit score is 703? In fact, only 11 percent of Americans have a credit score that falls below 580.
If you’re in that 11 percent, or have no history at all, it can feel almost impossible to get approved for a loan. There are, however, actually a lot of options out there for those that are struggling to find a loan.
If you’re curious, we’re here to help work out what your options for bad credit loans are, and how to go about getting yourself one. Read on to figure out what your next steps should be.
How Does Bad Credit Affect Borrowing?
Whether you’re attempting to get approved for a car loan, personal loan, home loan, or simply another credit card, your credit score is going to have an effect on the end results.
The truth is, the lower your score, the more that mainstream loan companies or banks are going to see you as a liability. You still have a chance at getting a loan, but your rates are going to be higher and so are the risks.
If credit confuses you, your score is a good place to begin gauging where you would stand with those mainstream loan companies.
Anything above 800 is considered excellent. From there, 740-799 is very good; 670-739 is good; 580-669 are considered fair; anything below that is considered poor. Where these numbers fall might change with each lender, but they’re a good starting point.
1. Meet With Someone in Person
No matter where your credit score stands, you’re always better off going to meet someone in person to discuss loan options.
Instead of a computer running your details through a magical algorithm, you’re going to have the gift of a face-to-face conversation. From there, you can discuss your options.
Worst case, if that lender can’t approve your loan, you can ask about other lenders, or for ways to build your credit score so you don’t run into troubles in the future.
2. Try a Credit Union
The biggest difference between banks and credit unions? Credit unions are not-for-profit. They are owned by their shareholders and are therefore the focus.
This ownership means increased flexibility when it comes to loans. It also means they take your entire financial picture into account—not just your credit score and report.
One thing to note: often, you have to be a member of the credit union to apply for a loan.
3. Find a Co-Signer
If a close friend or family member has excellent credit and a steady income, they might be able to help you get a loan by agreeing to co-sign.
Becoming a co-signer means that that person agrees to pay off someone’s debt in the event that they are not able to do it themselves. Having the backing of someone with consistent income and strong stability is helpful when getting a loan with bad credit.
4. Borrow From the Equity in Your Home
According to the Federal Trade Commission, a home equity loan uses the equity in your home as collateral. If you fail to make the payments on this loan, the bank can then foreclose on it.
The terms for these loans, however, are better than others. You repay the loan with fixed payments, similar to your original loan.
Often, the rates on these loans are lower than almost any other type.
5. Apply for a Secured Loan
Secured loans are similar to home equity loans. You offer up an asset of yours as collateral for the loan, like your car, a savings account, or another piece of property if you don’t own a home.
The same applies to interest rates and the overall amount of your loan as it does for home equity loans. Often, the interest rates are better, and the amounts can be higher since you’re adding something of value to the mix.
6. Apply for a Credit-Builder Loan
Credit-builder loans are great if you have bad credit or none at all. Put simply, the lender deposits money into a controlled account that you make payments on each month.
That bank or lender then reports your payments to the three major credit bureaus—TransUnion, Experian, and Equifax—to add or create a credit history.
The funds are given after the loan is paid off.
7. Leave Payday Loans and Cash Advances for Last
Payday loans and cash advances might seem like the easiest option, but they’re often the most costly and damaging if you don’t pay them back quickly. If you’re in a pinch, you’re better off starting with a friend or family member first.
A payday loan is a short-term loan designed to help in emergencies, and cash advances are similar. The APR for payday loans, however, can reach up to 500 percent. The number is averaged at 400 percent, but also comes with a fee for the borrowed amount.
Getting a Loan With Bad Credit Is Still Possible
The options we just discussed might seem daunting, especially if you’re tight on funds, but they can help in the long run if you’re having trouble getting a loan with bad credit. If you find yourself exhausting these efforts and still not finding a loan, you should focus on improving your credit score.
Not only should you correct mistakes on it, but you should also focus on paying down debt, never making late payments, and making your best effort to never max out your credit cards.
If you’re interested in more on money management, investments, and loans, be sure to check out the rest of our website.